GM isn't the kind of stock I'd normally consider to be part of my "Short universe" off the top of my head, but looking at the beta, I would be wrong to make such an arbitrary opinion without having first gathered the facts.
We might as well get it out of the way upfront, if you are short GM when it goes ex-dividend, you are responsible for paying the dividend which sounds kind of scary, but in reality the dividend yield is 3.60% (divide that by 4 quarters) and that's what you pay per quarter to hold GM short. If I can't do better than 3..6% on a short position, I don't want to have anything to do with it, but it's just one of those facts that you should be aware of.
As to why GM is getting interesting...
Just looking at a 2-day chart of GM, you should be able to identify which stage we are in within the multiple trends on this chart. The red arrow was a decline trend, white is a base as the market discounts 6-12 months in advance, with homebuilders around 2000 we saw discounting even further out. In other words, just like with earnings,
everything is perception, it's not what you did or what you are doing, but what you are expected to do and if this is the best you are expected to do, then the perception is negative and discounting kicks in.
Following the 2011/2012 base or stage 1 accumulation a mark-up/rally stage 2 trend is clear at the green arrow and from there a largely lateral trend is visible at the ornage arrow which is stage 3 top / distribution. If you look at volume levels with associated stages you see capitulation at the end of decline and what looks like exhaustion/churning near the top of the rally. This is one of the few stocks that saw volume increase at stage 2 as it should, but QE has made volume irrelevant the last 5 years, but it will matter again as the F_E_D exits accommodative policy which includes rate hikes.
With rate hikes, an economy that never healed is going to be under significant pressure, but it's not as bad as run-a-awy inflation so the cost of financing a vehicle will surge as well as the general economy deteriorating.
My custom Trend Channel stop system (5-days) holds the entire stage 2 mark up without a single stop until the red arrow.
Since that stop in the Trend Channel, GM is down -8.3% which isn't the point, the point is sometimes you can get slightly better prices after a Trend Channel stop out, but it's largely luck and most of the time, you are better off taking the gains and looking for the next trade.
This is a custom indicator you'll see more of, especially in a bear market with counter trend rallies which are some of the strongest. This is what I've been working on recently with a few other confirming indicators. This is signals of VIX inversion between the 1 and 3 month VIX. USually I have the SPX above as a comparison symbol, however I've replaced it with GM, but you can see the same buy signals (red) at VIX inversions work for GM as most stocks follow the market directionally, so quite a few VIX inversion buy signals have coincided with pullback lows including the most recent August cycle from a deeply oversold market (breadth) in early August. Other confirming indicators include an SPX to R2K ratio indicator, like a cumulative line that helps verify a real break lower vs what is likely a bounce area as it did right at the July/August lows before the August cycle/rally.
You'll be seeing these more and more as their signals become more relevant, but they should be especially useful in catching strong bear market counter trend bounces/rallies which are some of the strongest rallies you'll see. Take a look at the first counter trend rally after the Dow's 1929 break, nearly a +50% gain on a bounce!
This particular chart is showing what we only recognize in retrospect, it's just before the Trend Channel stop out, but looks like a large 15 month H&S top and while you could get lucky and catch a decent swing higher, for the most part this chows how lateral the overall trend is as it starts and runs through today with a -3.77% loss, or in other words, almost flat vs stage 2 mark-up which was a gain of approx. +120%.
Quite simply this is more evidence of where we are in the cycle, which stage so you know where you are on the map and what comes next (stage 4 decline).
Here's a rough estimation of the H&S top, it can be drawn a few different ways, but I matched this trendline with breaks and volume spikes on those breaks below the neckline so I think it's a pretty good trendline, although it's a little bit of a matter of semantics, the H&S is clear no matter where you draw the neck line.
I've highlighted the dividend yield here as well.
This is Money Stream which I'm using for confirmation, one of Don Worden's final Money Flow creations and a great broad indicator, although details can sometimes be lacking. What we see is confirmation of all of the trends including the base/accumulation and distribution in to the H&S top with a leading negative divegrence through 2014.
The 2-day 3C chart shows much the same with accumulation at the 2011/2012 lows, confirmation on the stage 2 rally and a leading negative divegrence in to the 2014 portion of the H&S top formation.
Being we have distribution confirmation and good staging confirmation, at this point the strategic probabilities are solid, now it's more about a good tactical entry with low risk and an excellent entry point with good timing. As you saw with the VIX inversion Indicator above which draws no signal from GM or even the SPY, but it does do a good job of showing VIX inversion and how that correlates with short term pullback lows or buying areas, we are really seeing the majority of stocks (usually about 66%) follow the market's directional lead, although as you have seen with breadth and I'll expend on later today, there are more stocks right now in an actual bear trend than you might think which is causing the market to become very fragile at these highs so the market timing itself will have a strong pull on GM and I wouldn't be surprised if we identify the market pivot to stage 4, which we may have already entered or will this week (that downtrend is pretty good evidence to make the case that stage 4 is already in effect). The point of the VIX inversion signals is that they are the same for GM as the SPX, just showing that GM is likely to move with the broader market as most stocks usually do (although breadth which has been falling apart all of 2014 took an especially hard hit as soon as Q2 Window Dressing ended on July 1st).
The 2 hour 3C chart confirms what the daily and Money Steam show, distribution since the head of the H&S pattern with a leading negative divegrence. I can post another 4 charts, but they'll all show the same confirmation.
So near term as we follow this week's market expectations and GM which has already started a bounce today, up +1.2% and above the neckline today, the 10 min chart shows distribution sending GM lower and below the neckline and very recently two accumulation areas, although I suspect they are separate from each other and the most recent one to the right is what's most important.
This accumulation is no where near strong enough to overcome the distribution damage on this 10 min chart, much less the 2 hour and daily/multi-day charts, thus using price strength in GM to enter short positions will give us a better entry and lower risk in to a weak upside move that has a high probability of failure.
The 2 min chart and accumulation from last week leading to this week
And very specifically, the intraday 1 min chart showing late day accumulation Friday in anticipation of today's move higher, often market makers or specialists who filled a larger order stocking up on inventory, in this case at low prices to sell in to higher prices before reversing and starting to short higher prices in advance of a move to the downside,
exactly what we want to do.
I'm setting price alerts for GM from here to the $35.25 level and will be double checking for distribution in to higher prices, looking for that entry area that will likely coincide with the broader market as well so I'd watch both of you are interested in a longer term GM short. the approx. price pattern based, implied downside target is about $26, but these are often overshot to the downside as fear is a much stronger emotion than greed and it generally happens in about 20% of the time.
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